PANC 2015: Micro Plans

“Plan sponsors with less than $20 million in assets under
advisement are generalists with a lot of responsibilities, and they are
strapped for time,” said Benjamin Lewis, senior managing director, direct plan
market, at TIAA-CREF, speaking on the “Micro Plan” panel at the 2015
PLANADVISER National Conference in Orlando, Florida. “They need an efficient solution and are not
very well covered, so it is a great opportunity to grow your business. Their
process is simplified. They rely on referrals as opposed to RFP [requests for
proposals]. If you have experience in their industry, they value that.”

In the not-for-profit K-12 education space with 100 or more
employees, only 25% use advisers, Lewis said. In the corporate space as well, “sponsors
are underserviced,” said Jennifer McPherson Franton. “The opportunity is there
for you to differentiate yourself. Why are advisers moving down market? Advisers
in the mid to large market are getting squeezed. They have to reduce their
pricing, which is why advisers are looking down market for more stable clients.”

Of the billions and billions of dollars of assets in 401(k) plans in the United States, a surprisingly large portion is in the micro market, noted Jason Roper, divisional vice president
at MassMutual Retirement Services. “You can really be a hero for these clients,”
he said.

As to what micro plan sponsors are seeking help on, they want help on the basics.
“They want to reduce their effort and risk and provide service to their
participants,” Lewis said. “Ninety percent of micro plan advisers consult on
investments and provide education. Fifty-five to 60% conduct fee assessments
and compliance monitoring.” They are also particularly interested in 3(38)
fiduciary services, he said.

NEXT: Seeking out the
micro plan business

“The smaller the plan, the more likely they will turn to
their personal financial adviser, so retirement adviser specialists can partner
with wealth management advisers,” Roper said. “That gives you a great opportunity
to get into the micro space.”

Lewis said that TIAA-CREF specializes in the not-for-profit
space, and that to find leads, he turns to the C-suite, since many of those
executives serve on not-for-profit boards. “Third-party administrators are also
a great source for leads across all the markets,” he said.

As advisers go down market, they need to move from customized models to
standardized models, McPherson Lewis said. “Platform providers can supplement
you with such things as education,” she said.

It is also critical for advisers to educate micro plan
sponsors on the importance of an investment policy statement and a retirement
committee, Roper said. Furthermore, small plans often want ancillary offerings, such
as 529 college savings plans, Roper said.

As far as what trends from the large plans are moving down
market, smaller plans are beginning to embrace more aggressive approaches to plan health and
financial wellness, Roper said. “Clearly, what happens in the large market
eventually moves down market,” he said. In addition, smaller plans are
beginning to issue RFPs, McPhearson and Franton said.

TIAA-CREF has developed a tool specifically for
micro plans that shows participants their income replacement ratios, Lewis
said. “We use that in advice sessions with participants. We can show them how
they compare to other individuals,” he said.